Cathay Life Insurance Co (國泰人壽) yesterday won the auction of several floors in an office building in central Taipei with a generous offer that flouts new restrictions imposed by financial regulators to rein in wild property investments among domestic insurers.
The life insurer, Taiwan’s largest by market share and the flagship unit of Cathay Financial Holding Co (國泰金控), offered NT$72.6 billion (US$242.19 million), or 23.4 percent more than the floor price, for six floors aboveground and another four below in a 12-story building on Xinyi Road Sec 4, bidding organizer Savills Taiwan Ltd (第一太平戴維斯) said.
The offer beat the highest market expectations of NT$7 billion after the Financial Supervisory Commission (FSC) on Tuesday raised minimum returns on real-estate investments by life insurers from 1.875 percent to 2.125 percent, both to boost their profitability and curb property price hikes.
The auction outcome translates into NT$1.34 million per ping for 6,054 ping (20,013m2) of space that is fully leased to a financial institution, bidding data showed.
Cathay Life executive vice president Lin Chao-ting (林昭廷) said his company failed to meet the new yield requirements with the bidding offer.
“We will give an account to the FSC tomorrow [today] about the property acquisition,” Lin said.
Cathay Life believes that property values and rental rates for office spaces in the building and the district as a whole will go up once construction on the MRT’s Xinyi Line is completed, Lin said. The extension work is due to be completed within two years.
“We intend to raise rental rates after present leases expire in two to three years,” he said.
The “quick return” clause that requires property investments to generate profits two years within purchase allows a two-year grace period for Cathay Life to meet the new rules, Lin said.
Cathay Life plans to buy more commercial property nationwide as real-estate properties, including the latest one, make up 5 percent of its overall portfolio, Lin said.
The office space, jointly owned by Mercuries Life Insurance Co (三商美邦人壽保險) and Horizon Securities (宏遠證券), will bring in hefty gains for both firms.
Michael Wong (王維宏), an account manager at the asset division of Sinyi Realty Inc (信義房屋), said demand for commercial property remains solid, as evidenced by the sharp competition for the office building.
The auction drew four bids, with more than 10 potential buyers, including major domestic life insurers, showing interest, Savills Taiwan said.